Changes to the UK’s corporate reporting framework from 1 January 2021
Accounting and Corporate Reporting after the end of the Transition Period
The UK has left the EU, and the transition period after Brexit comes to an end at 2300 on 31 December 2020. In preparation, the UK Government has issued letters to audit firms and companies setting out changes to the UK’s corporate reporting framework from 1 January 2021.
These letters set out in detail the changes that were covered in the BEIS presentation on YouTube.
BEIS are also running a live webinar for the audit and accounting sectors on 15 December 2020. There will be a chance for Q&A. Please register on this Eventbrite link to join the webinar.
Accounting Letter – Key points – (Please note that reference should be made to the actual letters)
For the vast majority of companies the UK’s accounting and corporate regime will remain largely unchanged. BEIS, however, would urge all companies who some form of cross-border relationship in the EEA or that currently use International Financial Reporting Reporting Standards (IFRS) to read the contents of the accounting letter to ensure that they are fully compliant with the relevant accounting and reporting requirements.
All UK incorporated companies that are currently required to use EU-adopted IFRS will need to use UK-adopted international accounting standards for financial years that begin on or after 1 January 2021. On 1 January 2021, UK-adopted international accounting standards and EU adopted IFRS will be identical. Companies with financial years ending on 31 December 2020, can continue to use EU adopted IFRS as it stands at the end of the transition period for the 2020 financial year, and UK-adopted international accounting standards for the next financial year.
The consolidated set of UK-adopted international accounting standards will be accessible on the UK Accounting Standards Endorsement Board’s (UK EB) website from 1 January 2021. Further information on the UK EB is provided below.
UK incorporated companies or groups with securities admitted to trading on an EEA regulated market, or UK incorporated groups that issue debt from a subsidiary incorporated in the EEA, will need to comply with local regulatory provisions from the 1 January 2021.
UK issuers of shares or debt securities that are only admitted to trading on EEA regulated markets will no longer be subject to Transparency Rules issued by the Financial Conduct Authority (FCA) from 1 January 2021.
The Transparency Directive currently permits use of UK GAAP for companies not required to prepare consolidated accounts. However, after the transition period, it is likely that companies that are currently permitted to use UK GAAP in respect of securities admitted to trading on a regulated market in the EEA will need to prepare an additional set of accounts that comply with the relevant Transparency Directive requirements.
UK intermediate parent company with EEA parent
Intermediate parent companies in the UK that have an EEA parent using EU-adopted IFRS to produce group accounts can benefit from the exemption in s.401 of the Companies Act 2006 from the requirement to produce consolidated accounts at the UK sub-group level. This is because the UK has granted equivalence to EU-adopted IFRS. Similarly, if the EEA parent produces group accounts that the company has determined as equivalent to those required by UK law, then the UK intermediate parent will also be able to benefit from the s.401 exemption for financial years that begin on or after 1 January 2021. If the EEA parent produces group accounts that are not equivalent to those required by UK law, then the UK intermediate parent company will need to produce consolidated accounts at the UK sub-group level.
UK incorporated subsidiary with an EEA parent
UK incorporated subsidiaries with an EEA parent can no longer rely on the parent’s nonfinancial information statement. Where the UK subsidiary is itself in scope of producing a nonfinancial information statement, then this will need to be separately produced for financial years that begin on or after 1 January 2021. This should be included within its strategic report.
It is also important to note that the subsidiaries audit exemption will no longer be available for subsidiaries of EEA parents. This means that UK registered large or medium sized subsidiaries, with an immediate EEA parent, will need to have their accounts audited for financial years that begin on or after 1 January 2021. This will also apply to UK registered small subsidiaries that cannot otherwise access the small companies audit exemption. For further information relating to changes to the UK audit regime please refer to the separate letter covering these changes.
The preparation and filing exemptions will no longer be available for dormant subsidiaries of EEA parents. This means that dormant UK registered subsidiaries with an immediate EEA parent will need to prepare and file individual annual accounts with Companies House for financial years that begin on or after 1 January 2021.
The UK Accounting Standards Endorsement Board (UK EB)
The UK Accounting Standards Endorsement Board (UK EB) is being established to endorse and adopt new or amended IFRS into the body of UK-adopted international accounting standards after the transition period. The Board is expected to be operational in early 2021. For the intervening period, the Secretary of State will have the power to adopt standards.